On Wednesday, Finance Minister Charles Sousa introduced Bill 70, which includes a new 61.5% sales tax for retail stores owned and operated by Ontario's distilleries. This tax is a major blow to Ontario's 21 small distilleries, including the 16 members of the OCDA, who often rely on their bottle shops as their only sales outlet. With this tax, Ontario has ignored the blueprint provided by its wildly successful wine and beer tax policy, and from spirits tax policies in places like British Columbia. There, alcohol is taxed by the litre, and provides a lower tax rate for small producers, which increases as annual production increases. In all of those cases, good tax policy has led to a manufacturing boom that has created jobs and substantial tax revenue for the Province.

The OCDA has advocated for a graduated, per-litre tax rate for its members in large part because a flat tax on retail prices punishes producers for crafting premium spirits with higher production costs. A tax on retail price, rather than volume of alcohol, means that the producer is forced to absorb the higher ingredient, labour, and packaging costs associated with making a higher-end product. The 61.5% tax on spirits is exorbitant in comparison to how Ontario's wineries and small breweries are taxed. Ontario wine is taxed at 6.1%, ten times less than the new spirits tax. "We we're hoping for much more, there's so much potential here in Guelph, Ontario's agricultural heartland" says JD of Dixon's Distilled Spirits.

Graduated taxation is necessary for small producers who lack economies of scale, and so depend on the revenue from their bottle shop sales to survive the critical first years. Ontario's craft breweries who make less than 5,000,000 litres of beer per year, pay less than half the tax per litre than the major breweries. Craft distilleries in British Columbia pay no provincial tax on their first 50,000 litres sold, with a phased in tax between 50,000 litres and 100,000 litres. Both of those tax policies encouraged exponential growth in their markets, resulting in new manufacturing jobs, increased tax revenues, and growing businesses that reinvest their profits in their communities. "On one hand, the government says it supports small business, and wants good manufacturing jobs in the Province, but this tax does the opposite," says Don DiMonte, owner-operator of Vaughan's Last Straw Distillery. "All we want is the same support from government that Ontario's wineries and craft brewers get."

Spirits regulation in Ontario - in the manufacture, sales restriction, and taxation - is forcing micro-distillers to look elsewhere for opportunities, at the expense of the Province's domestic market. Marcel Rheault, distiller of Loon Vodka in Hearst, opened his grain to glass distillery in 2009, believing that sooner or later distillers would see the same sort of graduated tax as brewers. Rheault notes, however, that "At this point, we're focusing our energies on export markets, as the tax regime in Ontario doesn't allow for grain to glass distilling".

In 2015, Toronto Distillery Co. launched a constitutional challenge to the province's unlegislated taxing of distillery stores. "We were so naive", says Charles Benoit, the distillery co-founder. "When we brought the challenge, we really thought that if our elected representatives put their mind to a tax, we'd get something thoughtful. Watching the roll out of wine and beer exclusively for big grocery to the detriment of independent specialty food retailers dispelled any notion that this government is interested in the viability of small business."

This latest disappointment comes on the heels of other dispiriting announcements from the Provincial government. On October 28 th , the LCBO announced that it would begin allowing distillers to deliver their grain-to-glass spirits to LCBO stores for retail. However, despite the fact that the distillers foot the costs of distribution, the LCBO opted to still apply its full 140% markup to the products. "The LCBO makes more margin on small micro-distillers' offerings than on anything else they sell - so much for supporting local!" says Greg Lipin, co-founder of North of 7 Distillery in Ottawa.

Also, "despite years of advocacy, and promises otherwise, government will still not let Ontario's small distilleries sell to bars or restaurants", says Geoff Dillon, distiller at Dillon's Small Batch Distillery in Beamsville. While there is no law that prevents a bar or restaurant from buying spirits from a distillery bottle shop, the contract the distilleries must sign with the LCBO to be allowed to operate the bottle shop specifically forbids the distillery to sell to licensees. Ontario's wineries and breweries have no such limitation. "We have bars and restaurants asking to carry our products, and we're saying no," says Last Straw's Don DiMonte. "The LCBO is forcing us to turn down business. To call it frustrating doesn't even begin to describe it."

A significant majority of Canadian spirits sold in the LCBO come from a handful of mega-distilleries, which distill for a myriad of labels. The government's policies in the spirits sector ensure that this will never change.

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For more information, please contact Charles Benoit at charles@torontodistillery.ca

About the Ontario Craft Distillers Association (OCDA): The OCDA is a trade association of sixteen small and independent distilleries spread out across Ontario, with the mission of promoting grain to glass distilling in the province.